Shenwan Hongyuan: China's steel consumption structure is shifting towards the manufacturing industry, with three factors driving expectations for improvement in the industry landscape
Shenwan Hongyuan released a research report indicating that China's steel consumption structure will shift towards the manufacturing industry, suggesting attention to the undervalued high-dividend targets such as JIULI Hi-tech in the plate and high-end stainless steel pipe sectors. The report analyzes three factors driving the improvement of the industry landscape: 1) Policy production restrictions and corporate cash flow pressures accelerate supply clearance; 2) The resilience of manufacturing demand supports the prosperity of plates and special steels; 3) Raw material prices are declining, leading to a more reasonable distribution of profits along the industrial chain
According to the Zhitong Finance APP, Shenwan Hongyuan released a research report stating that China's future steel consumption structure will shift from the construction industry to the manufacturing industry. During the industry's transformation, it is recommended to focus on undervalued, high-dividend plate targets primarily in the manufacturing sector with relatively stable demand. At the same time, in the medium to long term, special steel consumption in fields such as energy, new infrastructure, aerospace, and national defense has also become an important force in steel consumption. Therefore, it is suggested to pay attention to high-end stainless steel pipe targets, such as JIULI Hi-tech, which benefit from the high prosperity of the downstream oil and gas sector.
The report states that since the steel industry bottomed out in the second half of 2024, three factors have driven an expected improvement in the industry landscape.
1) Supply side: Policy production limits + cash flow pressure on some enterprises are accelerating the clearing of industry supply. Against the backdrop of carbon neutrality, the policy clearly sets the reduction of steel production as a medium to long-term tone, and energy-saving and carbon-reduction requirements are expected to accelerate the clearing of backward production capacity. The merger and reorganization of the industry on the supply side is expected to promote an increase in future concentration.
2) Demand side: Manufacturing demand is resilient, supporting the prosperity of plates and special steel. Macro policy benefits help stabilize construction demand, while manufacturing demand remains strong. The profitability of the plate and special steel sectors is still optimistic in the future.
3) Cost side: Raw material prices are trending downward, and profit distribution in the industrial chain is becoming more reasonable. The Ximangdu Iron Mine is expected to be put into production in 2025, leading to significant growth in iron ore supply. At the same time, the pressure on the steel supply side restricts iron ore demand. It is expected that the price center of iron ore will decline, promoting the recovery of steel company profits
